1 May 2015
RBA May rate cut remains a close call – ING
FXStreet (Barcelona) - James Knightley, Senior Economist at ING, explains that the probability of a rate cut by the RBA stands mixed, but forecasts a 25bp worth of easing in May, which might mark the low for the policy rate.
Key Quotes
“Expectations have been high for further policy stimulus in subsequent months, but the rationale for rate cuts is looking a little less clear cut in the face of a partial rebound in key commodity prices, stronger-than-expected core inflation and better jobs numbers.”
“Moreover, the minutes to the April RBA meeting stated, “overall conditions in the housing market had remained strong” while adding that credit growth was strong and was “likely to continue at this pace”.”
“While 23 out of 26 economists are currently forecasting a 25bp rate cut next week, the market is only putting a 50-50 probability on such an outcome. We agree that it is a very close call, but that the RBA will certainly want to keep the easing bias in place and a rate move will make it more likely that AUD will weaken, which would “help achieve more balanced growth in the economy”, as reiterated in the recent policy minutes.”
“Furthermore, the outlook for investment spending, particularly in the resource sector, remains poor. Wage growth is also soft, suggesting little medium-term inflation risk.”
“Taking this altogether we narrowly opt for a 25bp move, but think that this will mark the low for the policy rate.”
Key Quotes
“Expectations have been high for further policy stimulus in subsequent months, but the rationale for rate cuts is looking a little less clear cut in the face of a partial rebound in key commodity prices, stronger-than-expected core inflation and better jobs numbers.”
“Moreover, the minutes to the April RBA meeting stated, “overall conditions in the housing market had remained strong” while adding that credit growth was strong and was “likely to continue at this pace”.”
“While 23 out of 26 economists are currently forecasting a 25bp rate cut next week, the market is only putting a 50-50 probability on such an outcome. We agree that it is a very close call, but that the RBA will certainly want to keep the easing bias in place and a rate move will make it more likely that AUD will weaken, which would “help achieve more balanced growth in the economy”, as reiterated in the recent policy minutes.”
“Furthermore, the outlook for investment spending, particularly in the resource sector, remains poor. Wage growth is also soft, suggesting little medium-term inflation risk.”
“Taking this altogether we narrowly opt for a 25bp move, but think that this will mark the low for the policy rate.”